tag:blogger.com,1999:blog-6245381193993153721.post5731093360081178545..comments2024-03-17T00:23:24.896-07:00Comments on Social Democracy for the 21st Century: A Realist Alternative to the Modern Left: How is New Bank Money Created?Lord Keyneshttp://www.blogger.com/profile/06556863604205200159noreply@blogger.comBlogger3125tag:blogger.com,1999:blog-6245381193993153721.post-68959165527625336492014-05-01T09:40:32.736-07:002014-05-01T09:40:32.736-07:00Do you have some references for how "in poore...Do you have some references for how "in poorer communities, postdated checks and IOUs will often circulate"? That would be interesting to read.<br />Lord Keyneshttps://www.blogger.com/profile/06556863604205200159noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-91248225411442513942014-05-01T09:28:13.191-07:002014-05-01T09:28:13.191-07:00Also worth noting: in poorer communities, postdate...Also worth noting: in poorer communities, postdated checks and IOUs will often circulate. *These are money* -- privately created money. Money is created to fill demand, and for people who the banks won't lend/give money to, they find other ways of making it.Nathanaelnoreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-48546234840314421362014-05-01T09:25:59.575-07:002014-05-01T09:25:59.575-07:00This is a good *start*, but I think it's worth...This is a good *start*, but I think it's worth taking the next step in the argument.<br /><br />When you deposit $1 million in the bank, it creates $1 million of bank money, and it transfers $1 million in high-powered money from you to the bank vault.<br /><br />Many people will (correctly) argue "But the money in the bank vault isn't in circulation. Only money in circulation really matters; we don't care about the total amount of money, we care about the amount in circulation."<br /><br />HOWEVER -- the bank can now lend out the $1 million, putting it back in circulation. The demand deposit still exists *and can be spent* so the bank money still exists. So at this point, there is actually more money in circulation.<br /><br />The next objection will be as follows: "Ah, but suppose the bank lends out all its high-powered money, and then $20 million is withdrawn from the demand deposits and spent. The bank won't have the money."<br /><br />This is called a bank run, and in the US today, the Federal Reserve *promises* to print enough additional money to satisfy the bank withdrawals. In short, the Federal Reserve *promises* to make enough high-powered money to back up any money the bank makes.<br /><br />If we didn't have the Federal Reserve and FDIC, then a bank run would effectively destroy money, as people who thought they had money (in their demand deposits) would discover that they didn't.<br /><br />Most of the time, however, people write checks against their demand deposit accounts. *This also creates money*; the check is money. Until it is cashed or deposited, it is circulating additional to the deposit account. When it is cashed or deposited, the money is destroyed.<br /><br />Since checks are usually deposited (often back in the same bank), this also means that the banks don't often have to go to the Federal Reserve for high-powered money; they just change numbers around in their internal accounts.Nathanaelnoreply@blogger.com